Public Timber Purchasers Group Boise , 10 83702 · Public Timber Purchasers Group 2889 North...
Transcript of Public Timber Purchasers Group Boise , 10 83702 · Public Timber Purchasers Group 2889 North...
Public Timber Purchasers Group 2889 North Mountain Road
Boise, 10 83702
May 26, 2015
Brenda J . Fernandez, Procurement Analyst
U.S. Small Business Administration
Office of Policy, Planning and Liaison
409 Third Street SW., 8th Floor
Washington, DC 20416
Re: Advanced Notice of Proposed Rulemaking (ANPR); Small Business Timber
Set Aside Program; RIN 3245-AG69
Dear Ms. Fernandez:
Thank you for the opportunity to provide the Small Business Administration and the
Forest Service our comments regarding the March 25, 2015 Federal Register Notice, 80
FR 15697 regarding the Small Business Timber Set Aside Program (RIN 3245-AG69).
Public Timber Purchasers Group has long advocated for a comprehensive review of the
entire Forest Service set-aside timber sale program and we are very pleased to see that
the SBA is also participating in this review.
To be very clear, the Public Timber Purchasers Group (PTPG) is strongly opposed to the
SBA proposed specific actions in the ANPR regarding the appraisal point policy and
stewardship contracts. It is the responsibility of the US Department of Agriculture and
the Forest Service to administer the sale of federal timber. The SBA proposal clearly
exceeds the agency's authority, as it would have the SBA regulating the Forest Service
operations; a role that has never been authorized by Congress.
This letter details PTPG concerns regarding the SBA proposals, highlights the
opportunities for the Forest Service to modernize their set-aside timber sale program
and also provides specific responses to the questions listed in the ANPR. Where
appropriate, we have included attachments to provide either additional comments or
relevant assessments.
Background Public Timber Purchasers Group (PTPG) is a regional trade association
representing large business operations that rely on the purchase of Forest Service
timber sales to operate mill facilities . PTPG members own and operate
approximately 100 wood processing facilities employing over 13,000 people in
Oregon, Washington, California and Idaho. These facilities significantly rely upon
raw materials from public lands including those lands managed by the Forest
Service (FS) and the Bureau of Land Management (BLM). Under the SBA rules,
PTPG members do not qualify as "small business". As a result, PTPG members
are excluded from bidding on a significant portion of the timber volume offered by
the FS and BLM. Therefore, PTPG members are significantly impacted by policy
decisions and agency rules regarding the offering of timber sales limited to small
business.
Members include Idaho Forest Group, Stimson Lumber Company, Murphy
Company, Swanson Group, Roseburg Forest Products, Timber Products
Company, Boise Cascade Wood Products LLC, Hampton Resources, Sierra
Pacific Industries and lnterfor Pacific. Our members are active purchasers of
Forest Service timber sales in California, Oregon, Washington and Idaho and BLM
timber sales in western Oregon.
SBA Proposed Changes PTPG is strongly opposed to the SBA proposed changes regarding the Forest
Service's appraisal point policy and the inclusion of stewardship contracting in the
set-aside program. First, these changes exceed the authority of the SBA as they
regulate the administration of the Forest Service's set-aside timber sale program.
(See Attachment No.1) Second, the SBA proposals will have significant and
negative impacts upon the Forest Service timber sale and stewardship programs,
the US Treasury, rural communities and thousands of forest industry workers from
loggers to mill employees. (See Attachment No. 2)
Appraisal Point Policy. PTPG cannot support the SBA's proposal for the long standing
Forest Service appraisal point policy as the change would produce negative impacts
throughout the industry and beyond while providing a new and significant federal subsidy
to small business mills. Our concerns include:
•!• With Forest Service receipts reduced due to higher appraised haul costs
and the expiration of the Secure Rural Schools and Community Self
Determination Act in two years, the SBA proposed appraisal point policy
would exacerbate the current financial disruption for many rural counties.
•:· With Forest Service receipts reduce<:! due to higher appraised haul costs,
the US Treasury will collect less revenue from the sale of federal timber.
·:· As a senior Forest Service official has stated that National Forests would
use stewardship funds to offset the higher appraised haul costs for set
aside sales, fewer acres would be treated resulting in higher risks to
forest health, rural communities, private property and human lives.
•!• The current Forest Service appraisal point policy is compliant with the
Small Business Act and related agreements and law.
•!• A change in the appraisal point opens the door to unfair and inappropriate
business practices.
PTPG recommends the Forest Service retain the current appraisal point policy.
Stewardship Contracts. The congressionally authorized end result stewardship
contracting requires the Forest Service to select contractors on a "best-value basis" with
2
project that "meet local and rural community needs" (16 U.S.C. 1604 ). As the goal of the
stewardship program is to accomplish forest health, watershed improvement and similar
projects with the timber offsetting some or all of the costs for the project work, the
selection process focuses on the ability of each prospective contractor to complete those
projects within the designed parameters. This "Best Value" contracting methodology, by
necessity, is a subjective process. Including stewardship contracts to be part of the set
aside program would violate Congressional directive. (See Attachment No. 3)
PTPG is opposed to the SBA's proposal to include stewardship contracts within the
set-aside timber sale program. Our concerns include:
·:· The congressional authorization for the Forest Service's end result
stewardship contracting does not align with the set-aside timber sale
program.
·:· Coupled with the SBA proposal for the appraisal point policy, the
Forest Service will see a reduction in revenue from stewardship
contracting. In addition, stewardship funds would be used to
subsidize the increased appraised haul costs. These two factors
remove millions of dollars from the stewardship program and thus
reduce the acres treated.
·:· The Best Value evaluation process includes selection criteria
addressing local employment, the ability of the proposer to complete
the stewardship elements of the contract and related factors. The
selection process should remain open to all so the Forests can best
achieve the goals of the stewardship program.
PTPG recommends the SBA and Forest Service not include stewardship
volume and/or the stewardship contracting program with the set-aside timber
s ale program.
One More Point ... Fair Proportion.
The Small Business Act states that small business interests are to have a "fair
proportion" of the federal timber supply. However, neither the SBA nor the Forest
Service or Bureau of Land Management has specifically defined the term "fair
proportion". Instead, the agencies have relied upon the market share computation
processes of the set-aside program to identify that "fair proportion". As the
manufacturing infrastructure for both large and small business mills has dramatically
changed over the last 30+ years, those processes have clearly failed to fully address
those changes. This failure has resulted in a general distortion of the market share
concept where small businesses are acquiring an "unfair proportion" of the federal timber
supply. Based upon the following three figures developed by Northwest Management1,
small businesses purchase a significantly larger proportion of the Forest Service timber
supply than the small business proportion of mill log consumption. This demonstrates
1 "Current Log Consump1ion Analysis~ Nortlmest ;-.1anagcmem Inc. Muy 20. 2015
3
that the Forest Service's set-aside program as currently administered does not comply
with the "fair proportion" requirement of the Small Business Act.
PTPG recommends the Forest Service realign and update the set-aside timber
sale program procedures so that small business interests have preferential
access to only a "fair proportion" of the Forest Service timber supply.
Figure 1: Distribution of USFS Volume to Small or large Business
Manufacturers*
100%
90%
80%
7C1AJ
60%
50% Small
40% 8 large
30%
20%
10%
0% Rl R4 RS R6 Total
*Figure 1 includes volume from all USFS timber sales from 2010 to 2014 and mcludes sales purchased by
known manufacturers as well as those purchased by non-manufacturers and processed by unidentified
manufacturers.
4
100%
90%
I 80%
70%
60%
SO%
40%
30%
20%
I 10%
0%
Figure 2: Division of Current Annual Log Consumption Between Small and Large Business USFS Timber Sale Purchasers
Rl R4 RS R6 Total
• Small
a Large
.,Figure 2 does not include log consumption for manufacturers that did not participate in the USFS timber
sale program during the study period.
5
Modernizing the Set~Aside Timber Sale Program The Forest Service set-aside timber sale program developed in the 1970s simply does
not work in 2015 for either most of the rural communities of the western United States or
the majority of wood products manufacturing facilities. Now is the time for the Forest
Service to update the entire set-aside timber sale program so that the interests of small
business, large business and the rural communities dependent upon those mills can all
be addressed.
Define the Set-Aside Timber Sale Program Within the Code of Federal
Regulations. Since its inception, the Forest Service's set-aside timber sale program
has been implemented through provisions in the Forest Service Handbook (FSH) and
Manual (FSM) rather than the formal rulemaking processes defined in the Administrative
Procedures Act. The Forest Service's decision to conduct rulemaking outside of the
APA and within the FSM/FSH has deprived all interested parties including PTPG and its
members of the opportunity to seek administrative relief and/or judicial review of the
Forest Service's rules relating to the set-aside program. Any interested party is also
unable to effectively challenge the Forest Service's administration of its rules for the set
aside timber sale program through judicial review because the Forest Service has taken
the position that the FSM/FSH do not have the force of law. PTPG recommends the
Forest Service utilize the APA to codify the current rules and to address the
following actions needed to modernize the set-aside program.
Update the Standard for a Forest Industry Small Manufacturer. Section 3 of
the Small Business Act (15 U.S. Code Section 632) defines a small business as
u ••• one which is independently owned and operated and which is not dominant in
its field of operation". The Administrator may use " ... number of employees, dollar
volume of business, net worth, net income a combination thereof, or other
appropriate factors" to define a standard by which a business is determined to be a
small business.
The SBA has defined a qualified small business forest products manufacturer only
by employee size; disregarding the other factors identified in the law. Originally,
the number of employees was 50, then was raised to 100, raised again to 250 and
finally in 1964 it was increased to 500 employees. In its April 5, 1979 report, the
GAO found that the SBA's 1964 decision to increase the employee standard to 500
was done without the benefit of the required study of industry conditions. The
GAO's analysis also found that companies with less than 100 employees have
limited access to the set-aside program as the larger "small business" operations
dominate the program.
PTPG recommends that the Forest Service and/or SBA jointly conduct the
required study of industry conditions and then update the size standard for
the forest products industry. In conducting an assessment of the size standard,
the Forest Service and/or SBA should utilize the full range of factors noted in
Section 3 of the Small Business Act. While the number of employees for a SBA
qualified operation should be significantly reduced, the SBA should also examine a
definition that includes dollar volume of business and/or log consumption and/or
manufacturing capacity.
6
70-30 Rule. The current SBA and Forest Service rules require the purchaser of any set
aside sale to market no more than 30% of the advertised sale volume to large business
with no less than 70% of that sale volume milled in a small business facility. As small
business mills have consolidated or closed, loggers have become more active in
purchasing timber sales including set-asides. As the SBA has repeatedly stated that the
set-aside program in for only small manufacturers, the Forest Service should remove the
70-30 rule from any set-aside contract purchased by a non-manufacturer. The 70-30
rule restricts the logger's ability to merchandise logs when there is no small business
operation within an economically feasible haul distance willing to purchase 70% of the
sale volume. PTPG recommends that the Forest Service and SBA develop a waiver
of the 70-30 rule under specific circumstances, i .e. no small business mill in the
market area or within an economically feasible haul distance. PTPG also
recommends the Forest Service once again require the purchasers of set-aside
timber sales to provide periodic volume reports in order to assess compliance
with the 70-30 rule.
Five-Year and Structural Change Recomputations. The Forest Service has two
processes to re-compute market shares; the periodic five-year recomputation and a
three-year structural change recomputation initiated when significant changes, i.e. mill
consolidation or closure, impact a market area. PTPG recommends the Forest
Service consider a three-year periodic recomputation. Such a process would
provide a more timely review and update of market shares without the need for two
processes.
Suspending the Set-aside Timber Sale Program. A market share is defined as " ... the
amount of timber that small businesses are expected to purchase within a market
area ... " In addition, the Forest Service Handbook states, "A basic premise in the
administration of the set-aside program is to avoid timber supply decisions and policies
that may lead to timber allocations to individual companies .. : PTPG recommends the
Forest Service develop a policy by which a Forest Supervisor can suspend the
set-aside timber sale program within any market area with no operating small
business mill. In addition, the suspension process should be utilized when there
is only one operating small business manufacturing facility, as that situation is
also non-compliant with overall policy direction of the program.
Allocation of Non-manufacturer Purchased Volume. The Forest Service Handbook
provides conflicting guidance for allocating open sale volume purchased by non
manufacturers. Each Region (R1, R4, R5 and R6) has a different approach to allocating
this volume. PTPG recommends the Forest Service provide consistent direction
that has timber sale reports more accurately reflect the actual volume distribution
of sales purchased by non-manufacturers. For example, if a non-manufacturer
purchases an open timber sale, the volume allocation should reflect that purchaser 's
planned distribution of the sale volume.
Definition of " Manufacturing''. The FSH defines a manufacturer as " ... an existing
sawmill, specialty mill (such as a cedar mill, shingle or shake plant, pole plant or
deadwood stud mill), or a veneer manufacturing facility ... " The SBA has stated that
chipping of sawlogs from set-aside sales does not comply with their definition of
"manufacturing", but on multiple occasions the Forest Service (R6) has permitted
sawlogs in set-aside sales to be chipped even though the FSH definition cannot be
stretched to include a chipping operation. PTPG recommends the Forest Service and
7
SBA come to agreement on the definition of manufacturing and consistently apply
that definition throughout the set-aside timber sale p rogram. (See Attachment No.
4)
20% Rule. The Forest Service Handbook requires that at least 20% of offered timber
sale volume in any six-month period be in the form of open sales available to all
prospective purchasers. There is a history of non-compliance with the 20% rule in
Region 6 and occasional failures beyond R6. PTPG recommends all Forests fully
comply with the 20% rule and this rule remain in the program as a tool for
providing all bidders with access to the Forest Service timber supply.
Designati ng Set-aside Timber Sales. The Forest Service Handbook, FSH 2409.18
Chapter 92.41 , details a process for identifying set-astde timber sales. In designating
set-aside sales, the process. in turn, also designates the open sales. The sale
designation process currently does not permit participation by all potential purchasers.
Given the current manufacturing infrastructure and the current level of Forest Service
timber sales, PTPG recommends the Forest Service develop a transparent process
open to all interested parties for des ignating set-aside and open timber sales.
Triggering the Set-aside Timber Sale Program. The Forest Service Handbook, FHS
2409.18 Chapter 92.2, details the conditions that "trigger" a market area. PTPG
recommends the Forest Service provide Forest Supervisors the authority to forgo
triggering a market area under c ertain conditions, i .e. the lack of a small business
manufacturing facility within the market area.
Market Shares. The current base market shares were established about 40 years ago
and have no relevance to today's markets and manufacturing infrastructure. PTPG
recommends the Forest Service review and update all base shares to better identify
current conditions. In addition, the current Forest Service rules limit the amount of
change for market shares during the five-year recomputation process. These limits
cause a recomputed market share to misrepresent current market conditions. Since a
market share is the amount of timber that small businesses are expected to purchase,
PTPG recommends the Forest Service remove limits on market share changes.
PTPG Responses to SBA Questions in the Advanced Notice of
Proposed Rulemaking ... Stewardship Contracting
How should the FS include the saw timber volume on stewardship contracts
awarded to small business in the computation of small business market share?
The Forest Service's timber sale program and the end result stewardship contracting
program are two separate and very different programs. The timber sale program is
designed to move sawlogs to the private market while the stewardship program's goal is
to accelerate the timeline for improving forest health, watershed conditions, recreational
opportunities and fish and wildlife habitat on federal lands. PTPG recommends that
these two programs not be co-mingled nor should the Forest Service create a new
set-aside program within stewardship contracting. By maintaining the current
approach of two separate programs, the Forest Service achieves the following:
8
·:· Maintains and enhances the Forest Service's ability to treat hazardous fuels,
improve forest health and resiliency.
•:• Compliance with congressional intent to obtain ubest value" and local preference
in stewardship contracting.
•:• Maintain the focus on improving the current supply of federal timber sales and
the "fair proportion" aspects of the set-aside timber sale program.
Small businesses are already obtaining their "fair share" of stewardship volume. Based
upon Forest Service timber sale data for October 2010 to September 201 4, small
businesses received a significantly higher percentage of volume available in stewardship
contracts compared to the percentage of small business annual log use. In some
market areas-Colville, Bitterroot, Trinity and Sequoia-small businesses have been
awarded 100% of the stewardship volume.
Table 1: Stewardship Volume Obtained by Small Businesses
Compared to Small Business Current Log Use for All Mills
Purchasing Forest Service Timber Sales
Percent of Small Business Stewardship Log Use as a
Volume Obtained Percent of T otaf by Small Business2
Log Use3
Region I 45.8% 29%
Region 5 49.2% 17%
Region6 46A% 32%
How might inc luding stewardship saw timber volume impact future market share
calculations for small business concerns that participate in stewardship contracts
and/or conventional timber sales?
The factors that impact the purchase of open safes and set-aside safes and the "best
value» contractor selection for stewardship projects are many and vary by market area.
The impact on future market shares of including stewardship volume within the set-aside
timber sale program will certainly vary by market area.
What are the potential impacts (costs and benefits) if SBA regulations at 13 CFB.
121 .506 were to include the saw timber volume from IRTCs and IRSCs in the
calculation of small business market share?
2 C<lmpilcd b) PI p(,; Sourc~: Data f-orest ~ervicc: I imber <iah: Reports. October 20 I 0 to Sep1cmb.:r 2014.
J ··current Log Consump1ion Anal) sis". Nonhwcs1 Management Inc. May 20. 20 15.
9
a. What is the anticipated impact of the inclusion of saw timber volume
f rom stewardship contracts on stumpage prices?
As more timber is removed from open sales and selected for the set-aside
program, the bid price for that volume will decrease. A recently completed
economic assessment of four geographically diverse market areas determined
appraisal values would have decreased 3-76% with bid values decreasing 6-57%
if the proposed SBA changes had been in place over the last four years. (See
Attachment No. 2)
In their 1979 review of the federal timber set-aside program, the GAO found that
set-aside sales are higher in quality and return less revenue than open sales to
the U.S. Treasury. Specifically, the GAO found that in 50 of the 58
National Forests reviewed, set-aside sales were of higher quality than open
sales. In 48 National Forests, set-aside sales returned less revenue than open
sales. At three of the five Bureau of Land Management districts, GAO found set
aside sales were larger and were considered more desirable than open sales,
but returned less revenues than open sales.4
For example, the GAO reviewed 108 set-aside sales on the Umpqua National
Forest and found that those sales (even though of higher timber quality) returned
18 percent less overbid than the lower quality open sales.5 While the GAO
hesitated to extrapolate this data across all national forests, it did state that the
results exemplify that " ... restrictive bidding conditions do exist on set-aside sales;
the results also serve as a rough measure of the impact of the restrictions at the
various national forests. At most of the national forests, the restrictions resulted
in less revenues of varying magnitude."6
b. If inclusion of saw timber volume from stewardship contracts leads to
lower stumpage prices, what is the impact to land management activities
(paid for by stumpage prices) and retained receipts?
Utilizing the last four years of Forest Service timber sale data, a recently
completed economic assessment of four geographically diverse market areas
identified reductions in national forest retained receipts from stewardship
contracting ranging from 0.9% to 13% for an estimated total of $640,000 to
$1 ,155,000. (See Attachment No. 2) Expanded across the entire National
Forest System, the annual loss of retained stewardship receipts would likely
exceed $100 million. Treated acres would be significantly reduced at a time
when Congress and other interested parties are pursuing efforts to increase
treated acres.
c. What is the anticipated impact on sale values both from an agency
perspective and a treasury perspective?
4 ··Aik gntions Regarding Th~ Smalll.lusines:. Set-Aside Pro!~nun f- or l·edcml T irnh.:r Sale!-:· U.S. General
Accounting Office: April 5. 1979 (Pages 6-7)
' I bid. at Pa£?.e 55. 6 Ibid. a t Page 54
10
In addition to the findings of the GAO report noted above, the Bureau of Land
Management (BLM) recently found that appraising to the nearest small mill
" ... resulted in very long haul costs which reduced the value of the timber." The
BLM then stated:
•!• "Appraising timber haul to export timber from one market area to
another market area is not a sound business practice: Defeats the
purpose of the market area and the protection of local jobs and
manufacturing facilities situated within the market area.
•!• High haul costs reduce the timber receipts that are available for
payment to the O&C counties. If a sale is appraised to export timber
outside of a market area and receives no-bids, the sale may be held open
for bids but may not be reappraised. Bidders of any size class may bid
on the timber, but the stumpage value remains depressed due to the
appraisal allowance for exporting the volume out of the market area.
•!• Artificially maintains a high SBA market share by preventing the
proper function of the SBA share adjustment calculations that are
designed into the system to adjust (increase or reduce) the SBA share as
the number of qualified purchasers within a market area changes. "7
(Emphasis added)
The extensive GAO review, contemporary observations by the BLM and the
recent market area economic analysis (See Attachment No. 2) clearly
demonstrate that the set-aside program returns lower revenue to the U.S.
Treasury when compared with open sales.
The ANPR failed to address one other financial impact of the proposed
changes ... the impact upon local governments that historically have received a
share of the Forest Service receipts . Using the economic assessment of four
market areas, the estimated financial impact to the local county governments
ranged from 1% to 19% for a total of $698,000. Once again, expanding this
across the entire National Forest System would result in tens of millions of
dollars in lost revenue for local government. (See Attachment No. 2)
What would be the most efficient and effective way to account for actual saw
timber volume from stewardship contracts awarded to small business?
As previously discussed, creating a set-aside program within stewardship contracting is
contrary to congressional intent for the program to use best value contracting to benefit
local communities and restore forest health. It is noteworthy that after hearing the
arguments from small business interests in 2013, Congress permanently re-authorized
stewardship contracting without subjecting it to set-aside requirements.
In addition, Forest Service data demonstrates that small firms already are receiving at
least a "fair proportion" of timber volume from the stewardship contacting program. Thus
the dual policy goals of addressing forest health and insuring small businesses get a fair
proportion of the federal timber supply are already being accomplished.
7 Report of the BLM District Ma11ngcr fC.)rthc Mcdlord DisLrkt (Medford 2 Market J\reas): June 20 I-I (emphasis
added)
I I
Would an increase in the utilization of stewardship contracts in a market area
result In a lower representation of small businesses successfully bidding for
timber sales in that market area? Should this lead to lowering the market share for
small business set-aside sales in that market area when the FS and SBA compute
small business participation?
As small businesses have been very successful m being selected for stewardship
contracts, there is no reason to conclude that an increase in stewardship contracting
would negatively impact small businesses
Would including stewardship saw timber volume on contracts awarded to small
business in the calculation resu lt in more accurate representation of small
business participation in the market area?
The current market share recomputation processes do not accurately reflect the
participation of small business in the market area. Timber volume purchased by non
manufacturers is not accurately allocated to small and large business. The current rules
for modifying the rate of market share change also distort the participation of small
businesses in the market area. Inserting volume from stewardship contracts into market
share recomputations will only exacerbate an already broken process.
PTPG Responses to SBA Questions in the Advanced Notice of
Proposed Rulemaking .. . Appraisal Point
How can the actual haul costs to eligible small business timber set-aside
purchasers be better reflected in the appraisal process?
Under the National Forest Management Act of 1976 (NFMA}, the Forest Service is to sell
timber at not less than appraised value-the minimum acceptable bid - to assure that the
government obtains fair market value for the timber. In addition, the Forest Service
Handbook (FSH 2409.18 Chapter 45.11 titled "Appraisal or Marketing Point") states:
"Consider all costs, including specified roads, and identify the marketing location that will
develop the highest appraised or advertised value" (Emphasis added).
In compliance with NFMA, timber sale appraisers use the nearest wood products
manufacturing facility as the appraisal point as this results in the highest appraised value
for the Forest Service. Changing the appraisal point for set-aside sales will simply
provide a new and significant federal subsidy for small business manufacturers with local
government and the US Treasury paying that bill while also reducing stewardship funds.
An assessment8 of the Deschutes Market Area found that, if the SBA's proposed
appraisal point policy were in place over the last four years for the three set-aside sales:
•:• Appraised haul rate increases would have totaled $643,424, an increase of 47%,
or $15.43/CCF. ·!• The average increased haul distance per sale would have been 48 miles.
8 ··Analysis of Proposed SBA limber Sale Policy Changes Do~chuu.~~ Market Area; March 16. 2015.
12
·:· Appraised values would have been reduced by a total of $415,076, or 76%
resulting in an average reduction of $9 95/CCF in appraised value.
This is but one example of how changing the appraisal point policy for set-aside sales
would negatively impact the Federal Treasury, the Forest Service stewardship program
and shared revenues to local government.
Should there be considerations for keeping the appraisal point to the nearest mill
on a small business timber set-aside sale in those market areas that do not have
mills that would qualify as "smaW' under the SBA c riteria?
The current appraisal point policy should be retained for all timber sales in all market
areas. The Forest Service Handbook states, "A basic premise in the administraUon of
the set-aside program is to avoid timber supply decisions and policies that may lead to
timber allocations to individual companies ... " Therefore, the set-aside timber sale
program should be suspended in any market area no or only one operating small
business manufacturing facility as the program in that market area is clearly benefiting
only one operator and thus is non-compliant with overall policy direction of the program.
How should the prohibition against small businesses reselling more than 30% of
the saw timber volume to a large business concern be taken into account when
making appraisals for small business timber set-aside sales?
PTPG's views on the 70-30 rule are detatled on page 4.
What is the financial impact to the Forest Service if the 30% rule is included in the
appraisal point haul cost calculation of a small business timber set-aside sale?
PTPG's assessment of the financial impacts of the SBA's proposed change in appraisal
point policy were adopted have been discussed in prior responses and detailed in
Attachment No. 2. If the 30% rule was incorporated into the appraisal point policy, it
would complicate the Forest Service's appraisal system, i.e. which 30% of the sale
volume would be appraised to a different mill, and the timber sale valuation process of
potential bidders. The current appraisal point policy complies with Federal law, has well
served the Forest Service and, as the timber sale record demonstrates, has not been a
hindrance to the success of set-aside program.
What is the anticipated impact on trust funds (e.g., Knutson-Vandenberg), if any, if
appraisals are made to a small mill rather than the closest processor?
The Knutson-Vandenberg Trust Fund, as authorized by the Act of June 9, 1930, as
amended (16 U.S.C. 576-576b), allows portions of the receipts from timber sales to be
deposited into the K-V Fund to be used to reforest timber sale areas. In addition, these
deposits may also be used for eliminating unwanted vegetation and for protecting and
improving the future productivity of the renewable resources such as sale area
improvement operations, maintenance, construction. and wildlife habitat management.
As K-V funds are directly obtained through timber receipts and the SBA proposed
change in the appraisal point policy will reduce the appraised and bid value of set-aside
timber sales. the SBA proposal will clearly reduce the funds transferred to the K-V fund.
13
The Forest Service will have fewer dollars for reforestation, vegetation management,
wildlife habitat improvement and related K-V funded work.
SBA is also requesting data on mill s ize and locat ion.
The SBA, Forest Service and Bureau of Land Management all need to better understand
the forest products manufacturing mills, both small business and large business
operations. An analysis of that infrastructure within each market area and the factors
that influence those operations should be completed prior to addressing the SBA
proposed changes.
Other Comments.
The ANPR notes that the BLM also administers a set-aside timber sale program, but
excludes that program from comment. PTPG recommends the BLM set-aside
program be opened to comment and discussion as the firs t step in revamping that
program to reflect current conditions. (See Attachment No. 5)
Thank you for the opportunity to comment upon the ANPR including the comprehensive
review of the Forest Service set-aside timber sale program. PTPG will continue to work
with all interested parties to develop a federal timber sale program that meets the needs
of both small and large business manufacturers.
Sincerely yours ,
William A. Dryden
Executive Director
cc: Tom Tidwell, Chief, US Forest Service
Neil Kornze, Director, Bureau of Land Management
14
ATTACHMENT NO.1 .
The ANPR Fails to Comply with the Small Business Act, the
1971 USDA-SBA Memorandum of Agreement and U.S. Code
for Forest Service Operations.
After reviewing the ANPR, the 1971 Department of Agriculture (USDA)- Small Business
Administration MOU and several U.S. Code sections regarding the National Forest
System timber sale program, we can only conclude that the SBA is improperly inserting
itself into the administration of the Forest Service's set aside timber sale
program. Specifically, if the SBA promulgates rules relating to stewardship contracting
and the location of the appraisal point for set aside timber sales, the agency is involving
itself in the administration of timber sale set aside program. That action is counter to the
Small Business Act and the subsequent 1971 Memorandum of Agreement between the
USDA and SBA.
U.S. Code Congress has clearly designated the Secretary of Agriculture and the Forest Service as
the responsible parties for the management of the National Forest System including the
sale of Forest Service timber. Here are two examples.
16 U.S. Code § 472a - Timber Sales on Nat ional Forest System Lands (a)
Authorization; rules and regulations; appraised value as minimum sale price.
For the purposes of achieving the policies set forth in the
Multiple-Use Sustained-Yield Act of 1960, the Secretary of
Agriculture, under such rules and regulations as he may
prescribe. may sell, at not less than appraised value, trees,
portions of trees, or forest products located on National Forest
System lands.
This section of the U.S. Code states without reservation that the Secretary of Agriculture,
not the SBA, has the responsibility for prescribing the rules and regulations including
determining the appraised value for the sale of timber from National Forest lands.
36 CFR § 223 --Small Business Timber Sale Set-Aside Program; Appeal
Procedures on Recomputation of Shares . Sixteen years ago in 1999, the USDA
developed the current regulations addressing appeals of market share recomputations.
In Federal Register Notice Vol. 64 No. 2 page 408, USDA noted in the response to an
SBA request for joint agency decision on all market share recomputations ... "Moreover,
the administration of the timber sale set-aside program, Including decisions regarding
the recomputation of shares, is ultimately the responsibility of the Forest Service."
As major decision points such as market shares are solely the responsibility of the
Forest Service, then operational decisions including selection of the appraisal point and
determining which, if any. program such as stewardship contracts that are outside the
timber sale program should be part of the set-aside timber sale program are clearly the
sole responsibility of the Forest Service.
L5
Small Business Act In passing this Act, Congress clearly defined the roles of the two agencies for the set
aside timber sale program. For example, the SBA is responsible for determining the size
standard for qualifying as a small business and the SBA Size Appeals Board is the
arbiter of a size protest associated with the FS set aside timber sale program. Congress
did not and has not transferred any authority for conducting the timber sales on the
National Forest System from the Forest Service to the SBA.
In addition, Forest Service OGC found current policy as legal and unbiased. In 2007,
five small business timber sale purchasers filed protests with GAO on eight set-aside
timber sales. The protesters wanted the appraisal point to be at the nearest small
business mill . The Forest Service's OGC (Senior Counsel Lori Polin Jones) capably
defended the current appraisal point policy with the following argument.
"By appraising all timber sales, whether restricted to bidding by small businesses, or
open to bidding by both large and small businesses, in the same manner, i.e. to the
same appraisal point, the Forest Service has not violated NFMA, the SBA Act, the 1971
Forest Service-Small Business Administration agreement on administration of the set
aside program, or other Forest Service policy. The Forest Service is not exhibiting bias
or preference toward one size class or another." Page 11 , USDA Request for Dismissal,
or in the Alternative. Denial of Trinity River Lumber Co.'s Protest, B-31 0371 .
The General Counsel for GAO agreed with the Forest Service's position and all eight
protests were denied. To change the appraisal point would clearly introduce bias into
the Forest Service timber sale program as noted by the agency's own legal counsel and
will subject the Forest Service to legal proceedings including litigation.
The 1971 USDA- SBA Memorandum of Agreement
To facilitate the development and operation of the Forest Service's set aside timber sale
program, the USDA and SBA developed the 1971 MOU. Once again, specific roles
were defined. For example, the SBA, with proper notice, may conduct on site reviews of
the Forest Service's small business timber sale program. In addition, the SBA must
concur with the Forest Service's proposed sales within the set aside program. The MOU
also states the USDA is responsible for " ... developing sale programs suitable for bidding
by small business". When agreement cannot be reached for designating set aside
sales, "In accordance with the Small Business Act, the Secretary of Agriculture has
authority to make the final determination." (Emphasis added). As the Forest Service has
the final authority to develop the set-aside sale program and to determine which sales
will be set aside for small business, then the Forest Service clearly has the final authority
to determine the location of the sale, timber volume to be sold, access routes, timber
valuation, auction procedures and all other administrative elements for any set-aside
sale.
Finally, the SBA failed to utilize the prescribed procedures for seeking changes the set
aside timber sale program. In the 1971 MOU, the SBA agrees to " ... consult with USDA
on matters involving the forest products industry ... " Interagency consultation while
recognizing the Forest Service has the ultimate responsibility for administering the set
aside timber sale program was the appropriate process for the SBA. Pursuing rules in
16
an attempt to tell the Forest Service how to manage its timber sale program is beyond
the scope of the SBA's responsibilities.
17
ATTACHMENT NO. 2
Financial and Rural Communities Impacts from SBA Proposed
Changes
Financial Impacts. Delphi Advisors, a consortium of consulting firms specializing in
forestry related economic assessments completed a review of the fiscal impacts of the
proposed SBA changes on four Forest Service market areas.9 Using the 2010 to 2014
Forest Service timber sale and stewardship contacting data, their assessments
specifically addressed the value change in appraised values for set-aside sales and the
value differences expected with the inclusion of stewardship contracting.
Market Area Set-As ide Set-As ide Payments to Stewardship
Appraised Bid Value Local Funds
Value Government
Gifford 13% 6% 2% reduction 3.5%
Pinchot reduction reduction reduction
North Nez Perce 3% reduction 7% 1% reduction 0.9 -2.6%
reduction reduction
Deschutes 76% 57% 19% reduction 7-13%
reduction reduction reduction
Klamath 5% reduction 12% <1% reduction 3.9-5.3%
reduction reduction
NOTE: Financial impacts on local government are deferred until 201 7 due to the two
year extension of the Secure Rural Schools and Community Self-Determination Act.
These four assessments indicate a wide range of financial impacts ... all of which are
negative ... costing the Forests significant revenue from the timber sale program and
stewardship contracting. For example, the noted reduction in stewardship funds for just
these four market areas is estimated to be $640,000 to $1,155,000. The ability of
National Forests to invest in forest health projects will clearly be downgraded.
Rural Communities Impacts. A change in the appraisal point policy will have a
negative impact on many rural communities. The forest industry is the backbone of
many rural communities, but mill closures and curtailments have dramatically impacted
these communities' economic and social fabric. The mills that survive today are the
economic focal point of their community as they are successfully competing in the
market place under the current policies and procedures. By implementing a new
appraisal point policy, the Forest Service will be picking "winners" and creating "losers"
in many rural communities.
9 ''Analysis ofPrvpo$cd BA l imbcr Sale Po lie> Changes - Ocschutc::. Markel I\ rea" Delphi Advisors. March 16.
20 15. "Analysis of Proposed SBA fim bcr Sale Policy Changes - Gi fford Pinchot North M arket Area .. : Delphi Advisors.
Ma) 15.2015 ··Analysis or Propos~td SBA rimbcr Sale Pol h..) Changes - Nc;r Perce Market Ar.:a .. : Delphi Advisors: May 15. 2015 .
.. Anal) si:; of Propo~cd SUA rimbcr Sale Po lie) Changes - Klamath Markel Ar~a .. : Delphi Advi~o r-s: May 16, 20 15.
18
Forced rea lignment of forest industry infrastructure. A change in the appraisal point
policy would realign the entire Forest Service timber sale program beyond the current
set-asides for small business operations. The remaining mills are still operating because
they have been able to successfully compete for their log supply based upon the current
appraisal point policy. If the appraisal point policy for set-aside sales is changed, in
many cases, the Forest Service will appraise that sale to a distant mill , bypassing the
local mill that has traditionally been able to successfully compete for those logs.
Loss of community leaders support. One of the key reasons for the success of the
stewardship program over the last twelve years is the collaborative effort between local
communities and the Forest Service in planning and conducting stewardship projects.
The current contractor selection procedures for stewardship contracts include a
preference for the use of local labor. Community leaders will simply no longer support
stewardship projects when the timber is appraised to a distant mill as local labor would
likely be excluded from the processing of the logs and perhaps all work associated with
the stewardship contract.
Unfair and inappropriate business practices. The current procedure for selecting set
aside sales requires sale specific approval by the Smal l Business Administration (SBA).
The SBA consults with small business interests on those sales prior to granting agency
approval. As there are a relatively few small business mills, the process allows a small
business to essentially identify a sale they want to buy as a set-aside sale. With this
proposed change in the appraisal point policy, the small business owners will likely
select sales farthest from their mill as the log haul will be 100% subsidized. In turn, the
sale nearer their mill could then become an open sale where that same small business
owner has the advantage of short hauls. Therefore, the small business owner can
purchase more timber for a lower cost (and lower revenue to the Forest Service) while
using the agency's appraisal point policy to manipulate the timber sale program to
disadvantage competitors.
19
ATTACHMENT NO. 3
Congressional Direction for Stewardship End Result
Contracting Does Not Align with the SBA Set-Aside
Program.
After a brief pilot project program, Congress granted the Forest Service and
Bureau of Land Management stewardship end result contracting authorization
(Section 347 Omnibus Consolidated Appropriations Act of FY 1999). Land
management goals focused on improving forest health conditions, fisheries and
wildlife habitat and watershed restoration and maintenance. In addition, the needs
of local and rural communities were targeted. To assist the federal land managers
in achieving these goals, Congress approved the "best-value" approach to
selecting contractors. Any revenue resulting from stewardship contacts is to be
retained by the managing agency and re-invested in other stewardship work. In
the 2014 Farm Bill (P.L. 113-79), Congress granted permanent authority for
stewardship end result contracting. The provisions of th is authorization reflected
those approved in 1999.
Since its inception, the stewardship end result contracting program has been
excluded from the set-aside timber sale program for several reasons. The
congressional mandate for the 'best value" approach to selecting contractors is a
subjective process in which a variety of factors including rural community stability
and local employment are evaluated. Congress supported collaborative
community engagement in permanently authorizing stewardship contracting.
Setting aside a portion of the stewardship contracting program for SBA qualified
mills would, in many instances, result in non-compliance with the congressional
directed contractor selection process.
Second, the "best value" approach recognizes that any organization-not just
forest products operations-can provide a stewardship project proposal. Wildlife
conservation organizations, i.e. Wild Turkey Federation; other NGOs, i.e., The
Nature Conservancy; local service organizations and other non-forest industry
groups have repeatedly and successfully navigated the stewardship contracting
selection process. The ability of these groups to continue their work would be
significantly curtailed if a portion of the stewardship projects were set aside for
small business,
Third, coupled with a change in the appraisal point policy, setting aside
stewardship projects for small business would significantly reduce the ability of the
Forest Service to complete stewardship projects. Long hauls to distance SBA
qualified mills would reduce the revenue from many set-aside stewardship projects.
This would reduce the Forest Service's ability to financially support other projects.
In some cases, the stewardship project would change from revenue generating
project to a service project; thus requiring the Forest Service to either eliminate the
project, reduce the service work or use shrinking stewardship funds to support the
project.
20
In establishing this program, Congress's very specific vision for the stewardship
program is for the Forest Service and BLM to address the listed land management
goals. Including the stewardship end result contracting program in the SBA's set
aside program would significantly hinder the Forest Service and BLM's ability to
achieve those goals. Therefore, the Secretary of Agriculture, the final decision
maker regarding the Forest Service's involvement in the SBA's program. should
oppose the SBA's proposed actions and direct the Forest Service to maintain the
current administrative elements of the stewardship contracting program.
21
ATTACHMENT NO. 4
\.~u,
'# . ;t I 1 .. ) ~
·'v/lfll"
U .S . SMALL B USINESS A DMINISTRATION OFFICE OF NATURAL RESOURCES SALES ASSISTANCE
2401 • 4TH AVENUE, SUITE 450
SEAmt, WA 98121
August 29, 2011
John Allen, Forest Supervisor Deschutes N11t1onal Forest 1001 fNI Eml(ay ~d, Oregon 97702
Attn: Contrllc:tiog Off.cer Re Manufacturer and Manufactunog, Set-~e Tl/l'lber Sales
Dear Mr. Allen:
Otipp.ng lnduded timber rrom Forest Service or Bureau of uod Management nmber Sales IS not considered to be
manuladvnng or tlmber raw matenal. This IS not an ISSUe of COilCem In the oontext of open timber sales as long as
volume Is credited appropr!ately between large and SITiiiO business.
In set·as!de timber sate CDI'\tracts however, raw m~~tenat cruised, eppra1sed er~d sold CIS .saw bmber' must comply with
the 30/70 Rule In the final deiNe!)' of that sawtlmbef volume. Sa~mber, lr'l exteS1; of 30% of the advertised
sawtimber volume, may not be delivered for c:hlppmg aod resale to other than a small bUSlMS$ and be credited as
"tn4nuf;,ctured'. !n set·aslde timber sale confrllds, offered When it Mar1<et Area Is triggered, ensure ltlat purcMSi.'fs
do not deliver more thafl 30% of adVertiSed sawtimber volume ID processrng fad~t!es that a~ otJler than small
business.
In set·aslde tlmber sale oontrac:t:s a minimum of all sawtimber volume in excess o! 30% of adVertised sawtimber
volume, shall be dlstnbuted to a qualifled small busaness for mMufactunng. SBA should be notified of suspected non·
compliance wlctl set-aside requirements
Small non·manuracturers, qualified 11nd W1shlng to bid on sel·8$1de timber sale contreets, shall comply with set-aside
limber sale sawtimber delivery requorements. Small oon manufacturers, Who know they cannot meet delrvery
requirements (30/70 Rule), as onduded In set·as•de bmber sale contracts, sbO!.I!d not submit a bid on set·as.de
contracts. A bmber sale set·aSlCie oontra~ In the absence of a qual•fled small manufacturer or non-manufa<tvrer
bldd()l', should be classified •no·bld" and be re-offered as an open t•mber sale .which will not Include sawtimber
delivery flmrtatJOnS.
To avoid conflta with contTaa sawtimber deliVery requirements, S8A requests mat Forest Sei'VIce and Bureau of Land
Management announce at il.!l set·aslde timber sale auctions, before biddmg proceeds, a darlfk:atJon of the set-asrde
d<.41very tequl~ment:s p<:rtclinmg ro sawtimber volume (30/70 Rule): that the requlren~nt Js Included, It w•fl be
enforced, and inCibJIIty to comply wtA not be a bCisis for a m~IVer of the requirement at a Ia tei' date
If you !lave questiQns regardtog this clartflc:atkln, please call William J. Bramwell at 206-553·8~.
Slllcerv~
!/:,al.fi:;;--~ Office or Natural Resources Safes Asslstance Small Business Adm1nistrabon 2'101 4th Avenue, Suite 450 Seattle, Willshington 96070
cc: USOA FS RO • R4, R6, RIO
22
ATTACHMENT NO. 5
Comments Regarding the Bureau of Land Management Set
Aside Timber Sale Program
Background. The Bureau of Land Management administers a timber sale program in
western Oregon. The eight market areas are included in the SBA set-aside program.
The Oregon/Washington Timber Sale Procedures Handbook provides detailed direction
for BLM land managers. The guiding document for this set-aside timber sale program in
the six page 1990 Revised Operating Procedures (ROP). On several occasions in the
last five years, PTPG has pursued modernizing specific provisions within the ROP. The
ROP requires mutual agreement " ... by the agency (BLM), SBA and small and large
business representatives ... " to simply review the operating procedures. Small business
interests have blocked any discussions.
Modernizing the BLM Set-Aside Timber Sale Program.
Appraisal Point. The current BLM appraisal point policy is to appraise set-aside timber
sales to the nearest small business mill. All other sales are appra ised to the nearest
manufacturing operation regardless of size. , The BLM recently found that appraising to
the nearest small mill " ... resulted in very long haul costs which reduced the value of the
timber." In addition, the BLM concluded that the current appraisal point policy reduced
the amount of funds distributed to the O&C Counties and defeated the role of a market
area to support local jobs and communities. PTPG recommends the BLM adopt an
appraisal point policy that appraises all sales to the nearest manufacturing
facility.
Suspending the Set-aside Timber Sale Program. The BLM has exercised the
authority to suspend the set-aside program when a market area does not have an active
small business manufacturer. PTPG recommends the BLM develop criteria and
procedures to suspend the set-aside timber sale program in any market area with
either one or no operating small business mills.
Limits on Market Shares. For five-year recomputations, the current ROP (Section X(C)
(1 ,2,3) limits the amount of change for the market share. These limits may cause a
recomputed market share to not reflect current market conditions. PTPG recommends
the BLM remove the limits on the amount of change for market area shares from
the ROP.
Market Area Analysis. The ROP (Section X(C)(4) provides a process for assessing
market area conditions when the share change exceeds ten percentage points. The
BLM has not developed the specific factors to be evaluated and efforts to define the
factors and to conduct market area assessments have been thwarted by small business
interests. PTPG recommends the BLM develop the specific factors for c onducting
a market area analysis.
23